3 tips for finding financing anyway

For many entrepreneurs, the finances of their business are often intertwined with their personal finance. For someone with a bad credit rating, this scenario can make accessing a business loan more difficult than it would otherwise be.

The situation is much more common than we think. Valérie Bornais, director of the Center for Entrepreneurship of Quebec at BDC, regularly meets entrepreneurs whose credit history is tainted. "Many people are unaware that their spending habits can affect their credit rating, " she says . They also don't realize that it can hurt their business plan. You should know, in fact, that financing is often granted on the basis of the personal credit file. ”

This does not mean that you should give up on starting your business if your credit rating is poor. It all depends on what has hurt your financial situation. "If this results from an unfortunate event, a divorce, for example, but the business plan is solid, we will be more open to taking the risk and helping you," says ^Ms.  Bornais. However, you have to demonstrate that you have a good business plan, a good product and that you are a good manager. ”

Some solutions are available to you to allow you to move forward with your business project without too much delay.

1. Restore your financial situation

First, it is important to obtain your credit report from Equifax or TransUnion, the two main credit reporting agencies in Canada. You will know your score and you will ensure that the information on file is accurate. If this is not the case, it is possible to have them corrected by contacting these agencies.

There are different strategies to improve your financial situation . First and foremost, it's important to pay your bills on time - a single delay of more than 30 days can have a significant impact on your credit rating - pay off your credit card balance in full each month, make an judicious use of its credit capacity, ie no more than 30%, and limiting the number of requests to lenders are among the winning behaviors for restoring a credit report.

2. Know how to surround yourself

According to ^Ms.  Bornais, you can help your cause by finding one or more partners with an impeccable credit record. A more financially strong and qualified team of leaders can tip the scales.

In such a situation, it is important to consult a lawyer to draft an agreement which determines the roles and responsibilities of each one and will establish the rules at the time of the stake in order to protect the stakeholders.

3. Find a guarantor

A relative or friend can stand surety to facilitate the granting of a loan. This person must meet the lender's eligibility criteria.

The lender's decision will be based on the guarantor's personal assets and his credit history. The parent or friend must also fully understand the scope of their commitment since being a co-signer of the loan will appear on their credit file, which could limit their borrowing power. He must also understand the extent of his responsibilities if, unfortunately, you fail to fulfill your obligations.

Avoiding damage before it's too late

No start can be made without a personal financial contribution. But you should not wait until you have exhausted your savings before knocking on the door of your banker. Once the credit file is affected, the coast is necessarily more difficult to go up.

In particular, it is important to properly structure your business plan from the start. Incorporation allows you to protect yourself and separate your business credit from your personal credit.

"You also have to plan your project in advance," added ^Ms.  Bornais. It is justified to use your line of credit to finance your start-up, but you must have a game plan for the repayment of interest. You also need to have thought of other sources of seed funding . This will demonstrate that you have done your homework and will increase your credibility with lenders. ”

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How to Get a Commercial Loan Despite a Bad Credit Rating

If you have a bad credit score, getting a loan for your business might be more difficult, but it certainly isn't impossible.

Banks take various factors into account when assessing your application for a business loan . They try to understand the needs of your business, the project targeted by the request, the current financial situation of your business, as well as your credit rating and your personal net worth.

"The financial condition of a business is the most important factor in our assessment when deciding whether to approve a loan or not," said Darryl Curtis, director of the BDC business center in Meadowvale, Ontario. “It's a matter of judgment. "If a business is strong, growing, and has a good long-term outlook, the owner could get a loan even if their personal credit rating is poor."

Here are some tips from Curtis on getting a business loan when your credit rating is bad.

1. Be transparent

If your credit rating is bad, don't try to hide it from your bank. Instead, explain your situation to your banker. "We will not refuse your request just for a bad credit rating," says Curtis. "There could be a valid reason. We always check what is behind the numbers. ”

2. Be willing to pay interests higher

The interest rate on your loan is determined by the risk you present according to the banker's assessment. You will pay more if he considers you to be at higher risk.

"Even if your business has good prospects, you will probably have to pay higher interest if your credit rating is poor," says Curtis.

3. Be patient

Banks use credit scores to speed up the credit rating of a borrower. A bad credit rating slows down the loan process because your company's financial documents need to be examined in more detail and additional approvals are usually required.

"Using credit ratings speeds up the loan process," says Curtis. “They allow the lender to respond more effectively to customers. Instead of taking four or five weeks, we can do it in a few days, but a bad rating makes it difficult and can slow the process down. ”

4. Apply to improve your credit rating

You can improve your credit rating in several ways. For example, Curtis advises entrepreneurs to limit the number of credit cards they use and not use one card to pay the balance of another. He also mentions the importance of paying your bills on time to build a solid credit history.

The credit score is not the only factor: it is a model and an indicator .

Darryl CurtisDirector of the Meadowvale Business Center

These methods are described in this article, where you will also find tips for improving your credit rating in order to get the loan you want in the future.

Above all, according to Curtis, it is important to remember that the credit rating is only one of the multiple tools used by banks to assess commercial loan applications.

“The credit score is not the only factor: it is a model and an indicator. While we don't want to make too many loans below a certain threshold, we do it for good clients when the decision is justified. ”

For more information, download your free copy of the How to Obtain a Commercial Loan eBook : A Guide to Preparing a Compelling Loan Application .

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